Amazon offers authors 100% of sales amid dispute

JeffreyA. Trachtenberg

Amazon.com Inc. appealed directly to authors in a bitter publishing dispute, hoping to gain hearts and minds--and leverage--against Hachette Book Group in talks that could affect e-book pricing industrywide.

The Web retailing giant has proposed letting Hachette authors keep 100% of the revenue from their digital-book sales while the online retailer and publisher continue tense negotiations over a new e-book contract.

Hachette quickly rejected the proposal.

Amazon advanced the idea in a letter sent in recent days to a handful of authors and agents. Under the proposal, Amazon and Hachette, a unit of Lagardère SCA, would each give up their share of e-book sales, with the authors getting all of the revenue.

Amazon is pushing for a greater share of e-book revenue and lower e-book prices. Its negotiation with Hachette has turned into a messy, public battle over the future of the book industry. As part of its negotiating tactics, Amazon has removed the preorder button on coming Hachette titles, delayed shipments of some Hachette books and reduced the discount offered on some Hachette books.

The retailer's latest proposal is an effort to win back the support of Hachette authors who say they have unfairly become collateral damage in the negotiation. Amazon indicated in the letter that it hopes the move will speed up the talks.

Hachette on Tuesday afternoon indicated it wouldn't accept the idea. The publisher said, "Amazon has just sent us a brief proposal. We invite Amazon to withdraw the sanctions they have unilaterally imposed, and we will continue to negotiate in good faith and with the hope of a swift conclusion."

Amazon then shot back. Referring to a statement from the publisher earlier Tuesday that accepting such a proposal would be suicidal, Amazon said: "We call baloney. Hachette is part of a $10 billion global conglomerate. It wouldn't be 'suicide.' They can afford it. What they're really making clear is that they absolutely want their authors caught in the middle of this negotiation because they believe it increases their leverage. All the while, they are stalling and refusing to negotiate, despite the pain caused to their authors. Our offer is sincere. They should take us up on it."

Losing revenue from Amazon's digital book sales would be a big blow to Hachette. Amazon accounted for 60% of the publisher's e-book sales in the U.S. last year, according to recent presentation Lagardère gave to investors.

For Amazon, which sells everything from diapers to DVDs, the hit would be marginal, analysts said. "Hachette constitutes a very small part of Amazon's business," said John Tinker, an analyst at Maxim Group. "It's a smart PR move by Amazon."

Mike Shatzkin, chief executive of Idea Logical Co., a New York publishing industry consultancy, said, "Hachette has a tough row to hoe here, because their authors are getting hurt and missing the best-seller lists."

A letter circulated earlier this month by best-selling Hachette author Douglas Preston attacked Amazon for its tactics during the negotiations. That letter has been signed by a number of major authors, including James Patterson and David Morrell. There also has been a rival letter from self-published authors in support of Amazon.

In an interview on Tuesday, Mr. Preston said the Amazon proposal would be "devastating" to Hachette while "barely hurting Amazon at all." Mr. Preston also said he objected to the proposal because Hachette has supported him throughout his career. "There's something wrong with this, " he said. "My publisher gave me a very large advance for the book they are about to publish. Morally, I would have to turn over that [Amazon] money to them."

In the letter with its latest proposal, Amazon said it aims to "take authors out of the middle" of the dispute. If Hachette agrees to the idea of giving authors 100% of e-book revenue, the retailer said, it would also return to "normal levels of on-hand print inventory, return to normal pricing in all formats, and for books that haven't gone on sale yet, reinstate preorders."

Amazon said in the letter that it could put its proposal into effect in 72 hours if Hachette agreed.

The retailer also provided a more detailed account of the talks, saying it contacted Hachette at the start of January to discuss terms for their e-book contract that expired in March. "We heard nothing from them for three full months," the letter says.

Amazon said it then extended the contract into April. But negotiations didn't begin until it reduced its inventory of Hachette titles--leading to shipping delays--and reduced the discount it offered to consumers on Hachette books. Amazon said it last made a proposal to Hachette on June 5 but that Hachette hasn't responded with a counteroffer.

"We made an offer in April that was the largest we ever made to any retailer, and in May made another that was higher still," said a Hachette spokeswoman. "Both offers were rejected."

Amazon declined to comment.

Despite the highly public nature of the trade dispute, Amazon has mostly kept a low profile. In a posting on its website in late May, Amazon said that it was "not optimistic" that the disagreement would be resolved soon. Earlier this month, Russ Grandinetti, Amazon's senior vice president of Kindle content, told The Wall Street Journal that Amazon believed it was acting "in the long-term interest of our customers."

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